With Apple's stock price falling ahead of an increase in capital gains tax and investors worried about the so-called "fiscal cliff," the average analyst price target for AAPL stock has fallen to $740.

A total of 11 analysts surveyed by Philip Elmer-DeWitt of Fortune 2.0 have reduced their price target in recent weeks. Even with those drops, the average $740 target for AAPL is $225, or 44 percent, above the company's actual price as of market close on Thursday.

One noteworthy holdout who has refused to reduce his price target for Apple is Brian White of Topeka Capital Markets. His latest note, which AppleInsider covered last week, reiterated his target price of $1,111.

But others, such as Peter Misek of Jefferies, have decided to lower their targets in light of recent losses. Misek said in a note to investors earlier this month that he believes average selling prices for smartphones have peaked, while the future for Apple's iPhone ??and the rest of the industry ??is in developing markets. His price target for AAPL was cut to $800.

Michael Walkley of Canaccord Genuity also trimmed his price target from $800 to $750 this month. But he, like most others, has maintained a "buy" rating for Apple, forecasting it to be a wise choice for investors.

Among the most bullish high-profile analysts are Gene Munster of Piper Jaffray ($900 price target), Shaw Wu of Sterne Agee ($840) and Ben Reitzes of Barclays Capital ($800). Those below the average price target are Amit Daryanani of RBC Capital Markets ($725), Maynard Um of Wells Fargo ($710-$730), and Brian Marshall of ISI Group ($710), and Katy Huberty of Morgan Stanley ($714). Citi Research initiated coverage of AAPL in November with a price target of $675.

Recent drops in Apple's stock price have left many investors and analyst grasping at potential answers. Blame has been placed on a higher capital gains tax that will kick in with the start of the new year, as well as worries about the U.S. government's "fiscal cliff" negotiations.

As for Apple specifically, some have suggested there are general concerns about iPhone sales and build orders, while some investors have expressed concerns over the company's gross margins, which are expected to shrink in the face of a massive product lineup refresh.

A debt free company with over $100 billion in cash, a ridiculously low P/E ratio, selling every piece of product it can produce, fabulous customer satisfaction... and yet treated by investors as if it's on the verge of bankruptcy and liquidation. Maybe Michael Dell was right after all.

Why not go back and see how accurate each of those analysts has been with their projections for Apple over the past 10 years and then consider only those who have been making reasonably accurate predictions?

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

When a company like Amazon can post a quarterly loss and the next day their stock goes up 6% you know the market is rigged and a complete joke. The other day on CNBC an "analyst" predicted that Apple would drop another 30%. Her evidence? She checked out 10 different places and they all told her not to buy an iPhone 5 because it was just image and hype. Of course this "analyst" was pushing Nokia and Lumia phones.

A debt free company with over $100 billion in cash, a ridiculously low P/E ratio, selling every piece of product it can produce, fabulous customer satisfaction... and yet treated by investors as if it's on the verge of bankruptcy and liquidation. Maybe Michael Dell was right after all.

That's all true but I feel what we're seeing now is a correction. The stock was overpriced mainly due to investors trying to inflate it, no fault of Apple. Now it's adjusted down closer to where it probably should have been.

Of course the adjustment has now undervalued the stock but that's the market. Stocks are always either over or undervalued and are never "just right."

Anyway I say all that because I believe that the downward spiral for the stock is almost over. Especially considering in the article investors couldn't even agree on why the stock has been falling. Fiscal Cliff? Capital Gains Tax? Those things would affect the whole market not just Apple.

Why not go back and see how accurate each of those analysts has been with their projections for Apple over the past 10 years and then consider only those who have been making reasonably accurate predictions?

One thing I really don't understand is that Google and Apple have about the same median target prices with Google's being a bit higher (which shouldn't be considering Apple's better fundamentals), but yet Apple is sitting nearly $200 below Google at this point. I'm willing to bet that Apple shareholders are going to get hit much harder than Google shareholders during the fiscal cliff and Amazon shareholders will probably come out smelling like roses. Apple's cash reserve wealth, manufacturing prowess and large number of retail stores seem to give no advantage to Apple. In fact, it makes the company come out negative. What exactly does Apple need to do to get some damn respect on Wall Street. Apple's P/E is still shrinking like the company is actually losing money on a daily basis.

I'm not counting on a blowout quarter to do anything for Apple's share price. Any small miss will sink the stock that much further I'm inclined to believe. I know how exaggerated expectations always ruin a nearly spectacular quarter. How the heck does a company that keeps growing huge cash reserves every quarter continue to lose share value for shareholders? Tim Cook really needs to do something about getting more investors on board. The dividend didn't seem to help at all. I'm glad I got it, but it certainly doesn't offset Apple's $200 share drop by a long shot. As near as I can tell, nothing should have warranted that much of a drop. Time will tell if the fiscal cliff is going to kill Apple's value completely. Wall Street always claims Apple will get hit the hardest in a poor economy despite that hasn't happened at all when compared to other tech companies. Too much FUD being spread around about Apple to scare away potential investors.

That's all true but I feel what we're seeing now is a correction. The stock was overpriced mainly due to investors trying to inflate it, no fault of Apple. Now it's adjusted down closer to where it probably should have been.

Of course the adjustment has now undervalued the stock but that's the market. Stocks are always either over or undervalued and are never "just right."

Anyway I say all that because I believe that the downward spiral for the stock is almost over. Especially considering in the article investors couldn't even agree on why the stock has been falling. Fiscal Cliff? Capital Gains Tax? Those things would affect the whole market not just Apple.

By what metric do you think the stock was overpriced? If Apple was/is overpriced than certainly Amazon and Google are too, no?

The iPhone is by far Apple's biggest product and if smartphones are reaching saturation point that is a concern, but the iPad still has a long way to go. Not only is there lots of room for the iPad to grow, it's still at the point, as a product, where you really notice the difference from upgrading.

One thing I really don't understand is that Google and Apple have about the same median target prices with Google's being a bit higher (which shouldn't be considering Apple's better fundamentals), but yet Apple is sitting nearly $200 below Google at this point.

Which is completely irrelevant. So you think Google has more value because its stock price is $200 higher than Apple? Really? The price of the stock has meaning but the market value of that price doesn't? Really? You do know that if you add up all the stock of Microsoft and Google they don't equal Apple? You know that, right?

I have no idea where you are coming from on this but it makes the rest of your "analysis" look stupid.

In a rational world, the potential for a change to capital gains tax rates wouldn't have much impact on the price. Short-term investors (such as most hedge funds) are not holding the shares long enough to benefit from the lower rate anyway, so it shouldn't affect their trading. If you're a long-term investor and think it's going to go up, you're either going to hold on to your shares (which won't move the market) or sell them to lock in the 15% rate, and then re-buy them (which should compensate for the downward impact of the sales). The problem with this is that if they go up a bunch and you decide to sell within the next 12 months, you will pay a higher rate on any additional gains than you would have if you had just held on to the shares. If you think the price is going to go down, you sell and you don't re-buy, but you would have done that regardless of whether or not the capital gains tax rate changes. There are a few scenarios in which it might make sense to sell and not-re-buy even if you think it will continue to go up (e.g. if you think it will go up only a few percentage points before going down) but even these cases don't seem very reasonable.
I think a much more likely reason is that investors are waiting to see what happens with the much-hyped "Fiscal Cliff" negotiations. The likely failure of the negotiations, combined with the associated media frenzy, is leaving people uncertain about the future, and Apple is still seen as a luxury brand that will suffer if things take a downturn. Ironically, the display of a totally dysfunctional U.S. government and the panic stirred up by the media may have a more immediate negative impact than the fiscal issues they purport to be trying to avoid.

By what metric do you think the stock was overpriced? If Apple was/is overpriced than certainly Amazon and Google are too, no?

No doubt Google and Amazon are overpriced. Amazon's stock is going to crash after the holiday season, like it has the past few years. They always peak out around November and December and then fall hard in the winter and spring.

Google's stock has been fluctuating a lot the past few months as well, and I don't think their recent stock growth will last.

One thing I really don't understand is that Google and Apple have about the same median target prices with Google's being a bit higher (which shouldn't be considering Apple's better fundamentals), but yet Apple is sitting nearly $200 below Google at this point. I'm willing to bet that Apple shareholders are going to get hit much harder than Google shareholders during the fiscal cliff and Amazon shareholders will probably come out smelling like roses. Apple's cash reserve wealth, manufacturing prowess and large number of retail stores seem to give no advantage to Apple. In fact, it makes the company come out negative. What exactly does Apple need to do to get some damn respect on Wall Street. Apple's P/E is still shrinking like the company is actually losing money on a daily basis.

I'm not counting on a blowout quarter to do anything for Apple's share price. Any small miss will sink the stock that much further I'm inclined to believe. I know how exaggerated expectations always ruin a nearly spectacular quarter. How the heck does a company that keeps growing huge cash reserves every quarter continue to lose share value for shareholders? Tim Cook really needs to do something about getting more investors on board. The dividend didn't seem to help at all. I'm glad I got it, but it certainly doesn't offset Apple's $200 share drop by a long shot. As near as I can tell, nothing should have warranted that much of a drop. Time will tell if the fiscal cliff is going to kill Apple's value completely. Wall Street always claims Apple will get hit the hardest in a poor economy despite that hasn't happened at all when compared to other tech companies. Too much FUD being spread around about Apple to scare away potential investors.

Comparing the stock price of one company to another is meaningless, it doesn't mean anything that Google has a higher price than Apple. XOM is only $85, BRK.A is over $133,000.

The iPhone is by far Apple's biggest product and if smartphones are reaching saturation point that is a concern, but the iPad still has a long way to go. Not only is there lots of room for the iPad to grow, it's still at the point, as a product, where you really notice the difference from upgrading.

I agree with this assessment.

Only way Apple can grow the iPhone would be to expand to lower end markets, which is what analyst keep saying they want Apple to do. I'm not sure if Tim Cook will go in that direction or not, but with the introduction of the Mini who knows.

Originally Posted by jragosta
Why not go back and see how accurate each of those analysts has been with their projections for Apple over the past 10 years and then consider only those who have been making reasonably accurate predictions?

A good thing to keep in mind about financial advisors and analysts is that their primary incentive is to attract and retain paying clients, which does not necessarily align with saying what they really think is correct.

For example, a good advisor might very well think that there is a bubble in a particular market, and that staying out of that market is the best advice to their clients. But if unsophisticated clients follow that advice, and see themselves missing out on big short term gains, then the clients might leave that advisor. So the advisor has an incentive to give bad advice in order to retain bad clients. When the bubble inevitably bursts, the advisor will not be hurt, because most other advisors were giving the same advice (and the ones who gave different advice can be dismissed as "lucky", so long as their numbers are few)

Of course this does create an opportunity for a handful of advisors to actually say what they think is right in the hopes that being proven right will help them attract clients in the long run (e.g., Brian White). But that will only work out if there are also patient clients with long term investment goals. I think there are such people... just not too many of them (though what they lack in numbers they might make up for in $$).

In any event... I predict that Apple will cross $1,000 a share by the end of 2014.

There are two clear portions of the drop-- the October drop from $700 to 600, and November-December drop to ~$500. Each warrants a different explanation: October is likely mutual funds locking in gains and re-balancing, while the current drop is more about the bears jumping in along with the fiscal cliff issues. The fiscal cliff and capital gains increases are the same issue, although capital gains is more of a subset of fiscal cliff.

One thing that is interesting to me is that we never saw a capitulation, despite the fact that at $510 the stock has 20% return potential in the worst of times, and 40% by a reasonable measure of past performance, and 60% in a bull case. For me I have bought pretty much all I can, having crossed to margin calls due to some naked puts. I imagine other people are in similar positions, needing some upward momentum to drive things back up.

That's all true but I feel what we're seeing now is a correction. The stock was overpriced mainly due to investors trying to inflate it, no fault of Apple. Now it's adjusted down closer to where it probably should have been.

Based on what? Please give us your expert financial analysis as to what PE ratio would be appropriate for Apple. Then, explain what PE ratio would be appropriate for Google and Amazon - and then explain why each of the stocks varies from what would be appropriate.

By most standards, Apple's PE ratio is ridiculously low. It's well below the rest of the market as well as its competition. Its current PE ratio suggests that Apple will be growing at substantially slower rates than the Fortune 500-which is quite unlikely given the past 10 years of growth.

Quote:

Originally Posted by lkrupp

Which is completely irrelevant. So you think Google has more value because its stock price is $200 higher than Apple? Really? The price of the stock has meaning but the market value of that price doesn't? Really? You do know that if you add up all the stock of Microsoft and Google they don't equal Apple? You know that, right?

I have no idea where you are coming from on this but it makes the rest of your "analysis" look stupid.

This is a case where the answer is right even though the methodology is wrong. One can obviously not compare share prices directly. Otherwise, a 2:1 share split would mean that the stock was undervalued by 50% - and a company could increase its market value indefinitely simply by splitting shares repeatedly.

However, even though the logic was wrong, the conclusion was correct. Apple is markedly undervalued against its peers by almost any rational measure. The share price is therefore being held down by irrational factors.

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

Only way Apple can grow the iPhone would be to expand to lower end markets, which is what analyst keep saying they want Apple to do. I'm not sure if Tim Cook will go in that direction or not, but with the introduction of the Mini who knows.

Also as you said the iPad market is where Apple's future is at.

the iphone isn't on China's #1 carrier. There is plenty of growth there. What's the sense of Apple going to lower-end markets. It will lower the ASP and margins and for some reason Apple is getting killed on it with the ipad mini.

Who cares what the average analyst thinks?
Why not go back and see how accurate each of those analysts has been with their projections for Apple over the past 10 years and then consider only those who have been making reasonably accurate predictions?

It matters because when the idiot analysts make stupid predictions, it affects the stock price, which affects their predictions, which affects their stock price, which is why you see big shifts from day to day. With any company, unless the company has issued an earnings report or the cost of some resource that the company needs has changed drastically (like a sudden increase in the price of electricity or oil), there is actually no reason whatsoever for there to be big changes in the price of any stock from day to day. Is Apple as a company worth less or more today then it was worth yesterday?

What reality in the marketplace or in Apple's cost structure would have caused Apple's stock price to fall over 20% in recent months? NONE. This is all about psychology (and frankly, I think a lot of analysts decided to short the stock and needed to see it fall). Apple's fundamentals are exactly the same as they were a few months ago when the stock was above 700. And those fundamentals are still highly favorable as compared to almost any U.S. company in the last 50 years. Apple sells in a few days at high margin what used to take a year or more and people are disappointed in their sales? Give me a freaking break. Apple has changed the rules of retail selling and now the market is punishing them for it. I saw one analyst on TV who complained that while Apple developed new markets with the iPod, iPhone and iPad, since they didn't seem to have another totally new product line ready for sale, that Apple was now just an ordinary company. It didn't seem to matter to him that Apple just reported quarterly revenue of $36.0 billion and quarterly net profit of $8.2 billion.

The only case you can make is that if we "go over the fiscal cliff" for an extended period of time and income tax rates go up for some people, Apple's sales will decline because people will be paying 2% more in taxes so they won't be able to afford another iPad, iPhone, iMac, etc. But I think that's largely a bogus argument because it's not the way that consumers behave. If you ask the average consumer how much they paid in taxes last year vs. the year before, my bet is that 90% can't tell you. I bet that 95% can't tell you the percentage that federal taxes are deducted from their paycheck.

Of course the adjustment has now undervalued the stock but that's the market. Stocks are always either over or undervalued and are never "just right."

I think you're right. I myself hold quite a bit of AAPL, and when it's going up I often pat myself on the back and reflect on how sensible the world is, how everything is in good order and how effin smart I am. But then when the price is going down, I start whining about idiot, delusional Wall Street investors and illegal stock manipulation and how unfairly the world is treating me.

The fiscalcliff? What an effing joke. The top 20%(62 million people) control 89% of America's wealth while the rest of us starve. So what ever losese occur due to this joke known as the FC is felt by the mighty rich which pockets trillions OS disposable cash each year from our already enormous GDP.
Now, is the stock market rigged? Of course it is! Don't be dumb.

The iPhone is by far Apple's biggest product and if smartphones are reaching saturation point that is a concern, but the iPad still has a long way to go. Not only is there lots of room for the iPad to grow, it's still at the point, as a product, where you really notice the difference from upgrading.

I would have to agree with the assessment of the iPad, but not the iPhone. China is a huge untapped market for the iPhone and has yet to be explored. Initial results from sales there are very good, with 2M iPhone 5's sold and iPad mini's they cant keep on the shelves. If Apple can swing the deal with China mobile they will sell huge amounts of iPhone 5's. So world wide the iPhone is not saturated by any means. There is huge growth potential for it outside the US. Here in its recent quarter sales dominated at 51% of smart phone sales (US).

I would have to agree with the assessment of the iPad, but not the iPhone. China is a huge untapped market for the iPhone and has yet to be explored. Initial results from sales there are very good, with 2M iPhone 5's sold and iPad mini's they cant keep on the shelves. If Apple can swing the deal with China mobile they will sell huge amounts of iPhone 5's. So world wide the iPhone is not saturated by any means. There is huge growth potential for it outside the US. Here in its recent quarter sales dominated at 51% of smart phone sales (US).

I agree (wrt China)...but folks often forget that Apple's supply chain is still tapped out. Increase in demand does not equate to increase in supply. Seems like it'll take years for Apple to dramatically increase production of top tier iPhones (mostly due to high-level quality requirements). Apple has to find a way to produce a variety of products with variation of quality/materials so that they can fill the product pipeline with more consistency.

I still say that Apple will launch products at the lower end (like an iPhone nano) but will also look to Apple TV to leverage the halo effect...thereby "firing on all cylinders" of the supply chain AND increasing usage of its platform. Exciting times.